Advances [against
royalties]:
Payments of royalties made before they were earned. Advances paid to
developers are usually not recoupable by the publishers who pay them.
With good sales, a game can earn out so that those collecting
royalties on it will see some back end.

Publishers want
to pay the lowest advance possible. This helps their cash flow and keeps
developers wanting to make a hit game because they’re that much closer to seeing
some back end. (If a developer is paid huge advances, they’ll know that
the chances for them to earn out are slim, so they have less incentive to
make a kick-ass product.) Basically, publisher are looking for a developer who
will be their ‘partner’ and share the risk; the more the developer assumes the
up-front costs, the higher their royalty rate usually is.

Developers want
advances to be high enough to cover the costs of running their business while
the game is in development. The advances need to provide enough oxygen for them
to keep breathing and enough water for them to ‘cross the desert’ to the
project’s completion. After all, it’s in neither party’s interests for the
developer to go out of business halfway through the project. In addition, the
developer has to build in some profit up front, because the publisher can cancel
the project at any time (leaving developers who were counting on back end
from that project to make their profit high and dry). Sometimes this particular
contingency is addressed in the contract by having the publisher agree to pay
the developer a kill fee if the project is
cancelled.

Negotiations
over advances usually boil down to finding each party’s “point of pain” and
determining whether an accommodation can be reached where neither side is so
uncomfortable that a deal cannot be reached.

Ancillary Revenues:
Many contracts include a provision for the division of royalty revenues from
strategy guides, merchandising, licensing, and so forth.
Percentages for these items can be quite different from those for the product
itself.

Ass Armor: Having everyone physically sign off
on a printed copy of the game's Vision Document. That way, if the game is designed as agreed, yet fails in the marketplace, the
designer doesn't get all the blame.

Back End:
Royalties paid to a developer or author from the publisher in excess of those
paid as advances. This income occurs after the product has reached the earn out point.

Biz Dev: The Business
Development person at a game company. The Biz Dev is there to help a company
find key business opportunities by matching developers with publishers and
keeping abreast of useful industry news and trends.

Boilerplate:Contract
language, often in fine print and/or legalistic language, that appears on the
generic printed contract form used by one party and, thus, represents that
party’s ‘standard terms.’ Boilerplate in contracts usually represents terms and
conditions inherently advantageous for that party. The other party must
carefully go through it to find ‘gotcha’ language and other instances where
they’ll will get screwed and negotiate those out. See
"veritas simplex oratio est."

Business Equation: This is
spelled out as: Vision = Resources. The idea for a game cannot be bigger
than the amount of resources available to create it (neither should it be
smaller, but that's seldom a problem). If the vision is too big, it needs to be paired
down or more resources must be acquired until balance is achieved (i.e., can put
an equal sign between them). Often the the Business Formula goes back and forth
with the Vision and Resources modifying each other until balance is achieved.
All projects reconcile the Business Equation at some point. The secret is to do
this before the project starts. Otherwise, the Business Equation won’t
balance out until the project is partially completed when someone discovers that
it’s underperforming and/or missing milestone deadlines (at which point painful
reassessments must be made by senior management who are none too happy and may
even cancel the project).

Buzz: What people are saying either by
word-of-mouth, on discussion boards, email, and in print.
Buzz can often have a dramatic effect on sales of a product, often being the
single most important factor to a game's marketing success.

Casual gamer:
Is acquainted with the gaming hobby and plays occasionally; may be a “geek,” but
usually isn’t; infrequent purchaser of games (only if the game grabs their
interest and/or they think they can get people in their social circles to learn
/ play / enjoy them).

Cheese Screen: The ending
cinematic of a digital game. Named after a piece of cheese, which is a mouse's
reward for working through a maze to completion in behavioral research, the
so-called Cheese Screen is the player's reward for an essentially similar
act.

Confidentiality:
This is usually not a big deal and is often handled though a Non-disclosure
Agreement. Essentially, each party agrees to keep the other’s trade secrets
confidential.

Copyright:A copyright protects against only actual copying; therefore,
another person can claim rights to identical expression so long as it was not
copied. Theoretically, two people working without knowledge of each other could
paint the same picture, write the same software, or take the same photograph.
Each could copyright their creative work. The concept of copyright "expression"
does not include individual words, names or titles. The duration of a copyright
currently is the life of the author/artist plus seventy years or a fixed period
for anonymous or corporate authors. Almost every game is copyrighted.

Cross-collateralization:
When a developer is doing more than one game for a publisher (or an author does
more than one book for a book publisher, etc.) or a game for one publisher is
released on multiple platforms, the publishers may seek to link
the finances of the two (or more) products together. The upshot is that
publishers can apply royalty payments on a successful product to the others
until they have allearned out their advances (and only then
will the developer or author see a royalty check). This is a great
deal for publishers (as it mitigates their risk considerably) but not for
developers (and authors).

Cost of Goods (COGs):
This is what the publisher pays the printers for physical materials needed to
produce the complete retail product: that is, the box, game CDs, CD cases,
manual, and any other printed material or
tchotchkes
in the box. This usually includes the cost to assemble the games (i.e., putting
the right content into each box and shrink wrapping it). Typically, the Cost of
Goods is in the range of $2.50 to $3.50 per game unit produced (less for PC
games, more for cartridge-based games). Most royalty
payments are negotiated as paid to developers based on the game's
wholesale price minus the Cost of Goods (i.e.,
less the price the publisher had to pay to physically manufacture it).

Deliverables:What a
developer owes a publisher when a milestone is reached. These can include
documents of various sorts, art or music samples, mockups, executable software,
and source code or source assets. Generally, if that deliverable is deemed
acceptable to the publisher, the publisher makes another advance on royalty
payment to the developer and thus the project continues to be funded. See milestones.

Derivative Works:A copyright
holder's modification rights allow them to create "Derivative Works" (which is
an important legal term in contract law). Generally, Derivative Works mean
anything that's later made based on the original product. This is an extremely
broad definition. Because of this, it is generally best if the contract itself
provides an explicit definition of what Derivative Works means and how royalties
and future rights will be handled. Any sequel to the product is a Derivative
Work, but so is any other game that uses the same engine, even if it's in a
completely different genre. To the greatest extent possible, you want to have
control over Derivative Works, especially if they involve your property.

Earn out: When
a game or book has sold enough copies to equal the advances paid to create it.
From this point on, additional sales will earn the developer or author back end royalty payments.

Fringe gamer:
Is not very knowledgeable about the gaming hobby; plays rarely but does
play; seldom a “geek;” rare purchaser of games (usually only if a fad or if it
is on a subject of special interest).

Gantt chart:A Gantt chart is a horizontal bar
chart that offers
the benefit of being easy to change. (These charts may be adjusted frequently to
reflect the actual status of project tasks as, almost inevitably, they diverge
from the original plan.) A Gantt chart is
constructed with a horizontal axis representing the total time span of the
project, broken down into increments (for example, days, weeks, or months) and a
vertical axis representing the tasks that make up the project (for example, if
the project is outfitting your computer with new software, the major tasks
involved might be: conduct research, choose software, install software).
Horizontal bars of varying lengths represent the sequences, timing, and time
span for each task. Gantt charts give a clear illustration of project status,
but one problem with them is that they don't indicate task dependencies - you
cannot tell how one task falling behind schedule affects other tasks. The
PERT chart, another
popular project management charting method, is designed to do this.

Genre: A game's
classification or type as broken down into two broad subcategories: turn type
(real-time, turn-based, pause-and-effect, etc.) and category (action,
strategy, sports, shooter, role-playing, casino, etc.). Also see
The Real Game Cube.

Gray Market:
When a version of a game is released prior to its localized
versions, a ‘Gray Market’ version of that game is a copy of a non-localized
version of a game within a localized marker. For example, a game is released
first in the United States and will be localized in German. If someone in
Germany buys a U.S. version of the game instead of waiting for a localized
German version to be published, that sale is said to be made through the Gray
Market. It’s not illegal, but it does put a crimp on the German distributors’
sales that they aren’t happy about.

Gross Receipts: Monies
received by the publisher from the sales or licensing of the product. This is
a lot less than the price listed on the box in the store because the store takes
a big piece. Typically, for a product that retails for $49.95, the publisher
usually "grosses" between $30 and $35.

Hard Core gamer: Extends
gaming into their lifestyle (picture the stereotypical “game geek”); this gamer
writes, creates, and otherwise goes the extra mile for the gaming hobby and is a
frequent purchaser of games since gaming is among their primary hobbies.

Intellectual Property Rights
(IP or IPR): These include the copyrights and
trademarks (with the occasional rare patent, usually given to a special piece of
engine code), along with the game's expression of its story, setting, characters
and special items - all of which combine to make up that game's universe.
Intellectual Property is the Holy Grail of entertainment publishing and, while
consumers might think of it as merely a "brand," it is really much more than
that.

Intuitiveness: How easily a game can be
learned without the player receiving any instruction at all.

Kill Fee:
The money paid by a publisher to a developer when the developer cancels the
project. The kill fee is
usually the next milestone payment or two due on the contract.

Litigious: Prone to engage in
lawsuits. In America, we live in a "litigious" society.

Localize:
To make ‘foreign language’ versions of the game where the text and dialogue has
been translated into the local language (e.g., translating an American game into
German) for text and audio. Some content modifications might also be necessary
for the local market's particular regulations on violence (no humans can be
killed nor red blood shown in Germany), profanity, sexual content, or even
gameplay (shooters are made easer in Japan, platformers are more difficult in
the UK). This prevents a loss of foreign market
sales through the ‘Gray Market.’

Milestones:
Significant points in the development cycle marked by the completion of a
certain amount of measurable work (a deliverable). Advances are
generally paid as a certain amount on signing the contract (“start up” money)
and the rest over time linked to milestones (to assure the published that
progress is being completed to their satisfaction and on time before they sink
more advance money into it).

Milestones are
usually included in a contract’s appendix and must be very precisely defined.
Many publisher / developer disputes occur when milestone payments are due and
the milestone definition is vague; the developer says, “the work is done; pay
us” while the publisher argues that “the work is not done; we won’t pay you.”
So, avoid opaque requirements like “design 75% complete.” Use binary language so
that the milestone is either met or its not, such as “Concept sketches for 12
characters (front, side, and back); location sketches for 10 levels; and a
screen mock-up of the main user interface.”

Note that milestone
dates and deliverables do change over the course of a project (and this
happens all the time). Just make sure that the new deliverables are also very
specific and, most importantly, amend the contract to reflect these changes!
(This is why the schedule is put in the contract appendix; it’s easy to just
replace the old appendix with the milestone payment schedule with a new one.)

Always define the
mechanism for accepting milestones in the contract! That is, the publisher
should have a certain amount of time to review the work and either accept or
reject the milestone. Publishers want lots of time while developers want as
short a time as possible. Many developers also insist on a clause that states if
the milestone is not rejected within a certain number of days, it is
automatically deemed accepted.

Marketing Development Funds (MDF):
Euphemism for the extortion money paid by publishers to retailers so that a game
receives beneficial in-store promotion. That is, the publisher pays the retailer
to have the game put on the "New Products" shelf at the front of the store, to
have it placed at eye-level, to have it face-out instead of spine-out on the
shelf, to place it on an end cap (i.e., that little shelf at the end of an aisle
where people turn around), and so forth.

Media:
A game's
presentation platform as broken down into two broad subcategories: digital
(PC, platform, web-based, hand-held, cell phone, etc.) and analog (board, card,
miniatures, component-based, etc.). Also see
The Real Game Cube.

Milestone Schedule:
This is the timeframe in which the developer has promised to deliver certain
parts of the game to the publisher for the publisher's inspection. Milestones
generally run monthly (two weeks or less and there is too little to see; six
weeks or more and the projected may have drifted too far away from the
publisher's desires) with, typically, 10 to 20 milestones per project running
all the way through to the final completion of the game (i.e., when the Gold
Master milestone is sent to the publisher). When the publisher approves a
milestone it usually triggers a payment to the developer.

Mod: Short for "modification."
This is a game that is an electronic game made from the engine and assets from
another game.

MOTS: Acronym for "More of the
Same." When a sequel or 'me too' product comes out that offers nothing new in
it, the one-word review that often accompanies it is "MOTS."

Multiplier,
The:A value used
to adjust a contractor’s confidential internal budget information (i.e., actual
employee salaries) when creating a budget for external submission to 'factor in'
general office burden and overhead (i.e., fixed expenses like rent, utilities,
and insurance) and profit. This multiplier is usually in the 1.4 to 1.8 range.
(A 2.0 or higher multiplier indicating a company with problems being
competitive; i.e., it is supporting too much corporate 'fat,' while
a lower multiplier might represent unrealistic optimism or a very low overhead
outfit doing the work.) For example,
your company's multiplier is 1.4 and your Art Director's salary is $65,000 year.
If that Art Director is scheduled to work half-time on a project for 16 weeks,
the math would be: $65,000 / 52 weeks per year = $1250 per week. $1250 / 2 (for
working half-time) x 16 (the number of weeks on the project) = $10,000 for the
company's internal expense. On the budget submitted externally, this $10,000 is
multiplied by 1.4 for a total of $14,000. So, in this example, the line item on
the external budget would read: "Art Director, half-time, 16 weeks: $14,000."

Nepotism: When family (or even
friends) are shown favoritism in hiring or promotion.

Net Receipts:Gross Receipts minus a variety of allowances for
shipping, "marketing development" and
"product placement" in the stores, demo copies, and so forth. This can really
add up!

OPM:
Pronounced "opium," it stands for Other People's Money. That is what you're
trying to get when you set about to make a game (particularly to cover the
production and publishing costs).

Over-engineered: A mechanic or procedure that is needlessly complex in
its design. In a game this means one having too many steps take place to achieve
a results that could be reached far more simply. (See
Design for Cause.)

Patent:
Protects certain inventions having a utilitarian function. The owner of a patent
has rights superior to all subsequent inventors, but for a limited term of 20
years (17 years for patents issued prior to June 8, 1995). The rights to an
invention are not protected from use by others unless a patent is obtained from
the United States Patent and Trademark Office (USPTO) or other comparable
international authority. A patent contains full public disclosure of the
invention. Very few games are patented, though tools and technologies often
are.

PERT chart:A PERT chart is a project management tool used to
schedule, organize, and coordinate tasks within a project. PERT stands for
Program Evaluation Review Technique, a methodology developed by the U.S.
Navy in the 1950s to manage the Polaris submarine missile program. A similar
methodology, the Critical Path Method (CPM), which was developed for
project management in the private sector at about the same time, has become
synonymous with PERT, so that the technique is known by any variation on the
names: PERT, CPM, or PERT/CPM. A PERT chart presents a graphic illustration of a
project as a network diagram consisting of numbered nodes (either circles
or rectangles) representing events, or milestones in the project linked by
labeled vectors (directional lines) representing tasks in the project.
Some tasks are dependent or serial (meaning that one cannot be
begin until the task before it is completed; thus these tasks must be
accomplished in strict order), while others are parallel or concurrent
meaning that they can be undertaken simultaneously. The PERT chart is
sometimes preferred over the
Gantt chart, another
popular project management charting method, because it clearly illustrates task
dependencies. On the other hand, the PERT chart can be much more difficult to
interpret, especially on complex projects. Frequently, project managers use both
techniques.A broader definition and sample illustration
can be found here and
here.

Pitch: Short for "Sales Pitch,"
meaning a formal solicitation of a game idea in the pursuit of resources
(usually money) to advance the idea to the production stage and ultimately
realize it as a finished product.

Pitch Packet:
The information about a game necessary to Pitch the idea and sell it to the
client. A Pitch Packet includes a Vision Document, a proposed schedule, a
proposed budget, plus the pitching company's history and biographies of key
personnel that will be developing the project.

Product: The product is the end
result of your work, ready to ship to a customer in a retail package (or to
download from the publisher). Sometimes, it is defined as including the manual,
other documentation, or an installer. Make sure you understand what is
included and excluded in the definition of "the product" in your contracts!

Project Plan: A schedule of
what tasks must be accomplished, by whom, and when (including how long each task
will take) to complete a project according to its various pre-planning documents
(Vision Document, Design Document, Technical
Design Document, Art Style Guide, Sound Design Document, and so forth). A
Project Plan also includes milestone deadlines, task dependencies, and a risk
management plan.

Project Triangle:In manufacturing, when one does research and
development on something it is to make it: better, faster, or cheaper – pick
2. That is, you can achieve any two of these goals, but at a cost of a loss
in the third goal. In game making, the Project Triangle says that a game can be:
On Time, On Budget, or High-Quality/Feature Rich – pick 2. Any
project that aims to achieve all 3 will fail with at least one, more likely two,
and possibly all three goals. So, if
you want a game On Time and On Budget, be prepared to sacrifice High Quality. If
it is to be High Quality and On Time, there had better be a lot of Budget
flexibility in order to reach that admirable goal. If it is to be On Budget and
High Quality, plan on it taking a lot of time to achieve.

Key concept:
Every project must be envisioned with two of these goals ‘cemented’ (the project
will meet them) and the third goal must remain flexible and be constantly
managed.

Proprietary
Technology:
Publishers require access to all of the code necessary to publish and support
the game. Developers, however, have rights to their proprietary code for the
game’s engine and tools. Consequently, some negotiation must take place on this
issue and it must be explicitly addressed within the contract. There should be
no dispute about who owns what code once the companies go their separate ways.

Prototype: A copy of a game while it is still
in development. These can include hand-made analog games or alpha and beta
versions of game software.

Recoupable:
Something that can be taken back. Royalties are recoupable against advances;
that is, first the publisher "recoups" their payment of advances to you then
you get your royalty checks.Already paid advances
against royalties are generally not recoupable by a publisher when a project is
cancelled is fails to earn back its royalty advances.

Regular gamer: Is
versed on the gaming hobby by playing regularly and reading up on it; may not be
a “geek,” but often is; frequent purchaser of games since gaming is among their
hobbies.

Rights:
Generally, each side wants to retain as many rights as possible. Developers with
an original intellectual property are wary about giving up their rights to it to
the publisher. Publishers are equally wary of sinking millions of dollars into
developing and promoting an intellectual property that the developer can walk
away with after a couple years.

Some publishers will
ascent to ‘reversion rights.’ That is, the rights revert back to the
developer if the game has been out of print for a certain period of time.

Royalties:
A negotiated percentage of the money earned from each individual unit sale that is paid
by the publisher to certain parties such
as developers and licensors. This term is often used
incorrectly as it implies legal ownership of the product being sold. Only the
owner if the Intellectual
Property is entitled to a royalty; for everyone else who gets a
percentage from the sales, it would be better to call that revenue stream a
"bonus" or "revenue sharing," but most contracts still refer to those monies as
"royalties."

Royalty rate:
The exact percentage of royalties paid. For developers, the royalty rates
they can achieve are generally higher the more willing the developer is to
shoulder the up-front costs (i.e., take less in advances) and assume more
of the risk of the project’s development. Development houses that need no
advances and assume all the costs of development earn the highest royalty rates.

The royalty basis
is what values are used to calculate the royalties. Generally, royalties are
earned the wholesale (not retail) price of the game. From this,
publishers often seek to deduct (and developers resist these deductions to some
degree) things like the cost of goods (to manufacture it), marketing expenses,
and shipping costs. Other items that publisher seek to deduct from the royalty
basis (that developers tend to greatly resist) include Marketing Development
Funds (the extortion money paid by publishers to retailers for favorable product
placement and promotion in their stores), license fees (for example, the costs
to Paramount for licensing a Star Trek game), and the publisher’s various
overhead costs.

There can be
escalator clauses and caps included with royalty rates, too. For
example, with an escalator clause, a game might recoup its advances at an 18%
rate but once those advances are recouped and the developer will see some back end, the royalty rate drops to a 15% rate. Or perhaps there’s an
overall royalty cap equal to advances paid plus $500,000 in additional royalties
(if earned). Another case might be that the royalty rate drops to 0% if the
game’s priced is marked down to the bargain-bin level (so that the publisher can
blow out their remaining inventory without worrying about miniscule royalty
payments).

There are a lot of
tricks that can be done with royalty rates. You may find a lot of contractual
creativity when this aspect of the deal is negotiated.

S&M:
Sales and Marketing; these people are your friends not your enemy.

Sell-in: The number of games
sold from a publisher to retailers. This is an illusory number as these games
might be sold to consumers and, instead, returned to the publisher; thus no true
sale (or profit) is made. See "sell-through," below.

Sell-through: The number of
games actually sold to consumers. This is the good stuff, as it is a true sale.
See "sell-in," above.

Shelf Keeping Unit (SKU):
Every different published version of a game is known in the retail selling
business as a "SKU." For example, you might work on a game with four different
SKUs: 1) the basic PC version; 2) the "deluxe, director's cut" PC version that
includes added extras; 3) the Xbox version; and 4) the PS2 version. Thus, if you
walked into your favorite game retailer and looked around, you'd see all four
different versions on various shelves; hence the term "shelf keeping unit."

Sizzle: That part of a promotion that sounds the best
and makes people drool in anticipation. This comes from the old marketing
adage, "Sell the sizzle, not the steak."

Steak:The 'meat' or actual content of a game or its
production (including budgets, schedules, technical specifications and other
'boring bits') This comes from the old marketing adage, "Sell
the sizzle, not the steak."

Suggested Retail Price (SRP):
This is the prices that a game publisher suggests (and often assumes)
will be the game's retail selling price. However, this suggestion is meaningless
since it is the retailers who actually control the retail or "street"
price of a game, even to the point where the game is priced at a loss for the
retailer (these are called a "Loss Leader" sales and used to bring customers
into the store where the retailer will sell them something else for a profit;
supermarkets do this all the time, and so do game retailers on occasion). Never
use the suggested retail price in a publishing agreement contract; always,
instead, use "wholesale price."

Sycophant: The dictionary defines this as a "servile flatterer," but you
know them as a mindless kiss-ass. Because the entertainment industry is a vast
arena of ideas, when it's time to be truly creative sycophants don't do well.

Target audience:
The group(s) that
a game was created to appeal to in particular.

Term:
This is the expiration date for a contract. No one should have a contract that
goes on forever.

Termination:
The effects of termination of the deal should be spelled out. If either side can
terminate for cause (i.e., due to a breach of the contract by the other side),
the method should be spelled out, as well as the consequences and aftermath.
Often, publishers insist on the right to terminate the project “without cause,”
which is why developers often insist on a kill fee.

Trademark: A trademark is
any word, symbol or device that serves to identify the source or origin of
particular goods or services. MARRIOTT, McDONALDS, and MICROSOFT are examples of
famous word marks. The "golden arches" in the shape of the letter "M" of
McDonalds Corporation is a design trademark. Unlike a
copyright, a trademark can be obtained for a word or title, as long as the
word or title signifies the source of the product. The first to use a trademark
is the owner.

Trade Secret:The owner of
a trade secret can indefinitely preclude others from disclosing nonpublic
information obtained from the owner. However, the owner cannot stop independent
discovery and use of such information. Whereas a patent
does not protect ideas (only the embodiment of an idea in a new and useful
device or method), a trade secret can be used to protect the idea itself from
use by others. It is said the Coca Cola Company elected to keep its syrup
"formula" secret rather than obtain a patent because the patent would have only
a limited term, after which anyone could use the formula disclosed in the
patent.

Vision
Document: A short document containing an overview of a game's key
concepts or 'vision.' This is generally used as part of a
Pitch Packet for soliciting funding for a game
project (but also see Ass Armor) and includes:

Plenty of good concept art and screen
shots (or at least screen mock-ups)

A controller diagram (if one is used)

All set in a unique binding (to set it
apart from other Vision Documents) that itself helps convey the essence of the
game.

Wholesale Price: The price that the publisher
sells a game for to either a distributor or a retailer. With the possible
exceptions of a few direct sales at the
retail price and giving away promotional copies of the game for free, all
the revenue that a publisher receives comes from a game is based upon selling it
at its wholesale price.

Window Dressing:
Slapping a theme on an abstract game to give it better marketability. Risk!
is a perfect example; the map of the world and Napoleonic pieces have
nothing to do with the game's systems and mechanics, they merely provide 'window
dressing' for it.

Work for Hire:When someone pays you to create an original work
(such as when you are their employee or have been contracted to do work for
them), they own the intellectual property rights to it (i.e., the patent,
copyright, trademark, and trade secret rights and protections are theirs) expect
where otherwise specifically called out in a contract.